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Mortgage Terms Glossary

A-Credit:

A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a FICO score above 720.

Acceleration Clause:

A contractual provision that gives the lender the right to demand repayment of the entire loan balance in the event that the borrower violates one or more clauses in the note.

Accrued Interest:

A consumer with the best credit rating, deserving of the lowest prices that lenders offer. Most lenders require a FICO score above 720.

Acceleration Clause:

Interest that is earned but not paid, adding to the amount owed. Same as Negative amortization.

Adjustable Rate Mortgage (ARM)

A mortgage on which the interest rate, after an initial period, can be changed by the lender.

Amortization:

The paying down of principal over time. In a typical mortgage loan, the principal is scheduled to be paid off, or fully amortized, over the term of the loan.

APR:

The Annual Percentage Rate, which must be reported by lenders under Truth in Lending regulations.

Assumable mortgage:

A mortgage contract that allows, or does not prohibit, a creditworthy buyer from assuming the mortgage contract of the seller.

Average Hourly Earnings:

A monthly reading by the Bureau of Labor Statistics of the earnings of hourly plant and nonsupervisory workers in the private sector. While the AHE excludes salaried workers (unlike the employment cost index), it is available each month with only a brief lag. Released by BLS as part of the Employment Situation release, the report is generally issued on the first Friday of the month for the prior month.

Basis Point:

One one-hundredth of a percentage point. For example, if mortgage rates fall from 7.50% to 7.47%, then they've declined 3 basis points. A full percentage point is 100 basis points.

Balloon Mortgage:

A mortgage which is payable in full after a period that is shorter than the term. In most cases, the balance is refinanced with the current or another lender.

Cash-out Refi:

A refinancing of a mortgage in which the new principal (the borrowed amount) exceeds the outstanding principal of the original loan by at least 5%. In other words, the homeowner is taking equity out of the home.

Conforming Mortgage Loan:

Any mortgage loan that's at or below the amount that Fannie Mae and Freddie Mac can purchase and/or securitize in the secondary mortgage market.

Consumer Confidence Index:

A measure of confidence that households have in the economy. Released by the Conference Board late in the month.

Consumer Price Index (CPI):

A measurement of the average change in prices paid by consumers of a fixed market basket of a wide variety of goods and services. The broadest, and most quoted, CPI figure reflects the average change in the prices paid by urban consumers (about 80% of the U.S. population).

Conventional Mortgage Loan:

Any mortgage loan not guaranteed or insured by the government (typically through FHA or VA programs).

Credit Score:

A single numerical score, based on an individual's credit history, that measures that individual's credit worthiness.

Cumulative Interest:

The sum of all interest payments to date or over the life of the loan.

Debt-to-Income Ratios:

A component of the mortgage approval process that measures a borrower’s Gross Monthly Income compared to their credit payments and other monthly liabilities.

Employment (Payroll):

The number of nonfarm employees on the payrolls of more than 500 private and public industries. Generally issued on the first Friday of the month for the previous month by the Bureau of Labor Statistics.

Employment Cost Index:

A quarterly index used to gauge the change in the cost of civilian labor. Unlike the average hourly earning measure, the ECI includes salaried workers.

Existing Home Sales:

Based on the number of closings during a particular month. The reported figure is generally a seasonally adjusted, annual rate.

Fannie Mae and Freddie Mac:

The nation's two federally chartered and stockholder-owned mortgage finance companies. These two Government-Sponsored Enterprises (GSEs) purchase and/or securitize mortgage loans made by others.The difference between these two entities often comes down to size (Fannie's larger), business strategy and execution.

Federal Funds Rate:

Also known as the fed funds rate, this is the rate that banks charge each other on overnight loans made between them.

Federal Open Market Committee (FOMC):

The arm of the Federal Reserve that sets monetary policy.

Gross Domestic Product (GDP):

The value of all the final goods and services produced in the U.S. over a particular period. Available from the Bureau of Economic Analysis.

GSE:

A government-sponsored enterprise (GSE) is a financial services corporation created by the United States Congress.

Home Equity:

The difference between the current value of the house and the amount of money owed on the mortgage.

Home Equity Line of Credit:

A type of home loan that allows you to borrow money as you need it.

Home Equity Loan:

A loan that is secured by a home and limited by the market value of the home among other factors.

Home Improvement Loan:

Money lent to a property owner for home repairs and remodeling.

Home Loan:

Money provided by a bank or lending institution to pay for a home.

Homeownership Rate:

The number of households residing in their own home divided by the total number of households.

House Price Index:

A quarterly measure of the change in single-family house prices. The HPI is a repeat sales index, meaning that it measures average price changes in repeat sales or refinancings on the same properties, and is based on mortgages purchased or securitized by Fannie Mae and Freddie Mac.

Housing Starts:

The Census Bureau's monthly count of the number of private residential structures on which construction has started.

Interest Rate:

A measure of the cost of borrowing.

Jumbo Mortgage Loan:

A mortgage loan for an amount exceeding the Fannie Mae and Freddie Mac loan limit.

Loan-to-value Ratio (LTV):

The amount borrowed relative to the value of the property. An LTV of 80% means that the mortgage loan is for 80% of the value of the property, with the borrower making a 20% downpayment.

Mean Home Price (of New or Existing Homes Sold):

The mathematical average of the prices of all homes sold in the period. The mean price of homes sold generally runs higher than the median price due to the number of very high-priced homes.

Median Home Price(of New or Existing Homes Sold):

Of all the homes sold during the particular period, precisely half sold for more than the median price, and half sold for less. When determining the median, only one home price matters - that of the home in the middle.

Mortgage:

A loan that is secured by real estate.

Mortgage Rate:

The amount of interest charged on money lent for the purchase of a home.

Non-conforming Loan:

A loan that fails to meet bank criteria for funding.

Producer Price Index (PPI):

A measurement of the average change in the selling prices of goods and services sold by domestic producers, and therefore an indicator of inflation.

Refinance:

Acquire a new loan to pay off an existing loan on the same house.

Second Mortgage:

A mortgage on real estate which has already been pledged as collateral against another mortgage.

Securitization:

The pooling of mortgage loans into a mortgage-backed security. The principal and interest payments from the individual mortgages are paid out to the holders of the MBS security.

Underwriting:

The determination of the risk a lender would assume if a particular mortgage loan application is approved. Ability and willingness to abide by the mortgage loan terms, as well as the value of the property involved, are critical to the underwriting analysis.

Unemployment Rate:

The percentage of the labor force out of work. To be considered a member of the labor force, an individual must either be employed or actively looking for employment (so those without jobs who are not looking for work are not, technically, unemployed).